When is it time to use your emergency fund? Seven considerations

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Devin Miller
September 14, 2023

You’ve worked hard to build an emergency fund — your financial safety net for when life throws that inevitable curveball. And with a recent SecureSave study showing that 38% of adults have experienced a financial emergency within the past six months, that crisis could come sooner than you expect. 

The problem is, knowing when to actually dip into your emergency savings can be confusing. Is it for minor expenses that pop up on occasion, or only for serious, pull-out-all-the-stops crises? Long before you’re faced with this dilemma, it’s important to have a plan in place to help you decide when it is time to use your emergency fund, and when it makes sense to hold off or find another solution. These seven steps can help you make the smartest financial decision for your circumstances.

1. Decide if it’s actually an emergency

Start by figuring out if the situation you’re facing truly qualifies as an “emergency.” A financial emergency is an unexpected expense that could negatively affect your well-being, security, or financial stability if it isn’t paid quickly. Think medical emergencies, urgent home or car repairs, and sudden job loss. 

A financial emergency is an unexpected expense that could negatively affect your well-being, security, or financial stability if it isn’t paid quickly.

Sure, unexpected costs come up all the time — but unexpected doesn’t always mean urgent.

This is where some people might misstep. It can be tempting to call any unexpected expense an emergency, but that won’t help your financial wellness in the long run. An urgent financial situation means that if you delay paying that expense, it could have serious consequences. Let’s look at two examples:

Example A: Your car breaks down and you can't get to work. 

Verdict: An urgent financial situation because you could lose your job. 

Example B: You’re out of storage on your 2-year-old laptop and it isn’t operating as well as it used to.

Verdict: A non-essential expense that can be avoided through other measures (like cleaning up your hard drive). 

Establishing a clear-cut definition will help prevent you from dipping into your hard-earned savings too easily.

2. Assess the urgency and necessity

Now it’s time to look at the potential emergency based on urgency and necessity.

Urgency: Can this situation be delayed without serious consequences? If yes, then it’s worth exploring the alternatives first before dipping into savings.

For example, if your washing machine breaks down, you could visit a laundromat for a while until you save up enough money to repair it or buy a new machine. In contrast, if the heater in your home breaks down in the middle of winter, that’s an urgent issue that can't wait.

Necessity: How necessary is this expense to preserve your basic well-being, safety, or financial stability? If the issue at hand jeopardizes any of these aspects, it's essential. 

For instance, say you’re experiencing a dental emergency that could lead to more severe health problems in the near future if you don’t address it right away. Taking care of it is essential to preserve your health and your earning capabilities.

3. Gauge the impact on your financial stability

Before you decide to fund an expense, take a moment to assess its potential impact on your financial health. Will it put you in more debt or affect your credit score? If either is a possibility, consider all other options before accessing your savings. 

Say you need a $1,000 car repair. If your emergency fund has $5,000, then spending one-fifth of it may be manageable. But if your fund only holds $1,200, paying for the repair will nearly deplete your savings, leaving little room for other emergencies.

Now is the time to explore other options, like: 

  • Will your insurance cover the cost? 
  • Is there a warranty or service agreement in place that will take care of the expense? 
  • Are government or nonprofit assistance programs an option?
  • If all else fails, can you take out a zero-interest credit card? (For temporary relief only until you can save up the funds to pay it off)

Remember, your emergency fund is a last resort. Always weigh the cost (i.e., depleted savings or lowered credit score) against the benefits — and think long-term. 

4. Weigh the cost-benefit ratio

Don’t worry, you don’t have to do a full-blown financial cost-benefit analysis here. This step simply involves writing down the immediate costs and benefits of using your emergency fund for a specific expense, as well as considering the longer-term implications. Think about it like this: 

  • Costs: Items include the amount to be spent, as well as other factors like added stress, potential debt, or a ding to your credit. 
  • Benefits: Include intangible factors like being able to continue working, maintain possession of your home, or preserve your physical health.

Let’s say your kitchen sink is leaking, and it will cost you $1,200 to replace the pipe. You have a $3,000 emergency fund. 

Costs Benefits
Deduct $1,200 for pipe replacement Operational kitchen
Emergency funds lowered to $1,800 Safeguard from more severe property damages
Significantly less savings for future emergencies!

Just by looking at the number of items in each row, it appears that the costs may outweigh the benefits here. So you look a little deeper into the problem. Is the $1,200 pipe replacement absolutely necessary, or is there a lower-cost option? After talking to the plumber, you discover that they can patch the pipe for $400. 

It isn’t a permanent fix, but the patch is guaranteed for 6 months — giving you enough time to save up for the full pipe replacement without significantly depleting your emergency savings. By factoring in the long-term implications of the potential pipe replacement, you’re able to safeguard your savings and help protect your future financial security.

5. Prioritize essential needs above all else

We said it before, and we’ll say it again: prioritize what is essential to your well-being, safety, and financial stability above anything else. To check if something is essential, ask yourself: Will I/my family be able to stay healthy, secure, and financially stable if I don’t pay for this expense?

If you answer yes, then the expense likely isn’t essential. Always aim to use your emergency fund for essential, unavoidable expenses like medical emergencies, critical home repairs, car repairs, unexpected unemployment, or urgent moves (due to eviction, natural disaster, or health/family crisis). These are the kinds of things that you can’t put off without impacting your well-being and stability.

Imagine you're faced with a sudden $1,000 medical bill for your daughter’s emergency appendectomy. That's an unavoidable expense, and dipping into your emergency fund makes complete sense. But what if you're contemplating using the fund to landscape your backyard? Slow down! Consider taking the time to save up for this non-essential home improvement instead.

6. When in doubt, ask a professional

Sometimes your situation may be more complicated or difficult to navigate than the examples we’ve covered. That’s understandable — life gets complicated sometimes. Which is why there are professionals available to advise you. 

You might consult with a financial advisor who can help you assess the potential impact and explore alternative financial strategies. These professionals draw from years of experience helping others navigate similar financial challenges, giving them unique insights into other options or paths that you may not be aware of. This type of guidance can be incredibly helpful in times of crisis. 

7. Always preserve and replenish

The most critical step comes after you’ve made the decision about using your emergency fund. Whether you’re dipping into your savings or not, it’s always important to preserve and consistently replenish your fund. If you didn’t end up touching your savings, great — now is the perfect time to recommit to both preserving and growing your fund. Check your monthly contributions and consider increasing them slightly, even just by five dollars or a couple percentage points.

If you did dip into your savings, develop a plan to replenish the fund as quickly as is feasible for you. Look at your monthly expenses and see whether you can cut a luxury item for a few months in order to increase your emergency fund contributions and replenish your savings faster. This will help you continue growing your emergency savings account for future unforeseen circumstances.

Use your emergency fund wisely

Think of your emergency fund as not just a financial cushion, but a critical tool for maintaining long-term financial health. Before tapping into it, make sure to consider the urgency, necessity, and potential financial impact of the expense. If it isn’t an essential need that’s critical to preserving your well-being and security, don’t risk it. Always consider long-term consequences.

Prioritize essential needs like medical expenses, unexpected home repairs, or sudden job loss. Non-essential items can often be delayed or managed through budget adjustments or alternative methods like low-interest or zero-interest financing. If you're uncertain about when it is time to use your emergency fund, consider consulting with a finance professional.

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